| | | Applied Materials outlines 40% advanced DRAM revenue growth in 2025 amid strong AI demand
May 15, 2025 7:07 PM ET
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Earnings Call Insights: Applied Materials (AMAT) Q2 2025
Management View- Gary Dickerson, President and CEO, reported that "Applied Materials delivered strong results across the board, including record earnings per share." He emphasized the company's agility amid a "highly dynamic macro environment" and noted that customers are focused on "winning the race to be first-to-market with transformative new technologies."
- Dickerson stated that Applied is well-positioned in areas such as AI, foundry-logic, advanced DRAM, packaging, and power devices. He highlighted that "in 2025, we expect our revenues from advanced DRAM customers to grow more than 40% as they ramp investments in DDR-5 and high-bandwidth memory."
- Dickerson revealed strong market adoption of new products, noting, "Our Sym3 Magnum etch system for advanced patterning...has generated more than $1.2 billion of revenue since we launched the product in February 2024."
- The CEO detailed strategic progress with the EPIC R&D facility, stating, "Construction of our new flagship R&D facility, the EPIC Center in Silicon Valley is progressing on schedule, and we expect the center to start operations in Spring 2026."
- Brice Hill, CFO, stated, "We delivered another strong quarter in fiscal Q2, with robust year-over-year revenue growth, gross margin expansion and record earnings per share." He attributed these results to increased leading-edge foundry-logic investments and highlighted "approximately $2 billion in dividends and share repurchases."
Outlook- Brice Hill guided for fiscal Q3 total revenue of $7.2 billion, plus or minus $500 million, "representing a 6% increase year-over-year at the midpoint, and non-GAAP EPS of $2.35, plus or minus $0.20, representing an 11% increase year-over-year at the midpoint."
- Management expects Semiconductor Systems revenue of approximately $5.4 billion, AGS revenue of approximately $1.55 billion, and Display revenue of approximately $250 million for Q3.
- Hill explained, "We expect a stable and healthy DRAM market and growth in NAND, driven by upgrades."
- The gross margin guide for Q3 is "approximately 48.3% and non-GAAP operating expenses of approximately $1.3 billion."
Financial Results- Applied Materials reported total net revenue of approximately $7.1 billion for Q2, up 7% year-over-year, with growth across all business segments.
- Non-GAAP gross margin was 49.2%, up 170 basis points year-over-year, marking the company's highest quarterly gross margin since fiscal 2000.
- Non-GAAP earnings per share reached a record $2.39, up 14% year-over-year.
- Semiconductor Systems revenue was $5.26 billion, AGS revenue was $1.57 billion, and Display business delivered revenue of $259 million.
- Free cash flow for Q2 was approximately $1.1 billion. The company ended the quarter with cash and cash equivalents of $6.2 billion and debt of $6.3 billion.
- Hill noted, "Our Board of Directors approved a 15% increase to our dividend per share" and an additional $10 billion share repurchase authorization, resulting in $15.9 billion available for future repurchases.
Q&A- Stacy Rasgon, Bernstein Research, questioned the sequential performance of the AGS segment in light of China restrictions. Hill clarified AGS core business had a record in Q2 and is expected to "grow at low double digits during the year," despite trade headwinds and weaker 200-millimeter equipment.
- Vivek Arya, Bank of America, asked about ICAPS exposure and China trends. Hill indicated "mid-to-high single-digit growth across the horizon" for the ICAPS segment and noted China semi is expected to be about "mid-20s percent" of total company revenue, with strong share in the 28-nanometer node.
- CJ Muse, Cantor Fitzgerald, pressed on gross margin sustainability. Hill confirmed the company is "making very good progress with value-based pricing and cost management" and expects "low-48s, probably right around 48.2% to 48.3% is the right level."
- Melissa Weathers, Deutsche Bank, inquired about DRAM dynamics. Hill stated HBM is "growing at a 40% rate," and DRAM business is "very strong" and being pulled by AI leading-edge demand.
- Timm Schulze-Melander, Redburn Atlantic, asked about risk appetite in advanced packaging. Dickerson said, "We have very high visibility in where the industry is going" due to deep customer relationships and a connected portfolio.
Sentiment Analysis- Analysts voiced concerns about the impact of China trade restrictions, AGS segment growth, competitive pressures in ICAPS, and margin sustainability. Questions were generally probing and slightly cautious, especially around sequential growth and geopolitical risks.
- Management maintained a confident tone in both prepared remarks and Q&A, emphasizing resilience and growth in core segments. Hill used phrases such as "high confidence" and "we are very well-positioned," while addressing challenges directly and providing detailed explanations.
- Compared to the previous quarter, management's tone remained confident, with continued emphasis on leading-edge technology and growth, while analysts maintained a cautious stance due to ongoing trade and market uncertainties.
Quarter-over-Quarter Comparison- Revenue guidance midpoint for Q3 increased to $7.2 billion from the prior quarter's $7.1 billion, while the EPS midpoint moved to $2.35 from $2.3.
- Gross margin guidance for Q3 (48.3%) is consistent with Q2 guidance, while actual Q2 gross margin (49.2%) outperformed the prior quarter's 48.9%.
- Dividend per share was increased 15% in Q2, with a new $10 billion share repurchase authorization announced.
- Management reiterated strong growth in DRAM and foundry-logic, with continued headwinds in China and mature logic (ICAPS), reflecting similar themes from the prior quarter.
- Analysts in both quarters focused on China, AGS, gross margin dynamics, and competitive landscape, but the current quarter featured more repeated probing on sequential growth and China restrictions.
- Management's confidence in strategic positioning and margin improvement initiatives continued from the prior quarter, with expanded discussions on new product performance and advanced packaging.
Risks and Concerns- Trade restrictions and tariffs impacting China equipment and services revenue remained a key challenge. Hill described "lower China business due to those trade restrictions" and highlighted related headwinds for AGS.
- Volatility in 200-millimeter equipment and utilization rates contributed to weaker performance in that segment.
- Management cited a "highly dynamic macro environment" and geopolitical uncertainty as factors behind widening the revenue guidance range.
- Analysts pressed on risks from new Chinese competitors and market share erosion, as well as the sustainability of gross margins amid tariff and supply chain impacts.
Final Takeaway
Applied Materials' management underscored record financial performance in Q2 2025 and reaffirmed confidence in its multi-year growth trajectory, driven by continued leadership in advanced logic, DRAM, and AI-enabling semiconductor technologies. The company highlighted a robust product pipeline and deep customer collaborations, notably projecting more than 40% revenue growth from advanced DRAM customers in 2025. Despite ongoing trade restrictions and near-term challenges in China and mature logic markets, Applied Materials expects to deliver low double-digit core services growth and maintains a stable outlook for margins and profitability, while expanding capital returns through increased dividends and share repurchases.
Read the full Earnings Call Transcript |
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